Redistributing Wealth to the Rich

The world’s more unbelievable and fantastical than anything we could imagine. Look around. Astounding things are taking place each and every day.

For instance, earlier this week China’s richest man, Wang Jianlin, paid $28.2 million for Pablo Picasso’s painting of his children, “Claude et Paloma.” That’s over double the price the painting was estimated at. Surely, Christie’s in New York was pleased to auction it off for such a princely sum.

Nonetheless, we suppose Jianlin won’t have buyer’s remorse. He has a net worth of $13.2 billion. But why pay $28.2 million for a dead man’s painting of his kids? That’s absurd.

Another daily reminder things are quite incredible is the giant, expansive hole in the ground at the corner of Wilshire Boulevard and Figueroa Street in downtown Los Angeles. We expend many of our days at the high rise office building across the street grinding out mass quantities of good work at a profit for the enterprise. In exchange, and in addition to a paycheck, we get all the free coffee we can drink.

Occasionally we peer out the window, down into the capacious excavation and marvel at the tiny workers laying the foundations for what will soon be the tallest building in Los Angeles. Someone at Korean Air has decided it’s a good idea to spend $1 billion to add a magnificent trophy building to the skyline. We’re not so sure; however we’re eager to check out the view from the top when it opens in 2017.

But that’s nothing…

Going Bananas

If you really want something astounding, incredible, and fantastical to marvel at, take a gander at the stock market. Good golly. Have you ever seen a more unbelievable sight?

Not a day goes by that we don’t pause to gawk at its wonder. The S&P 500’s up 24 percent year-to-date. What’s more, the Nasdaq is up 30 percent over this same time.

This really is quite remarkable if you consider the dispirited economy that’s supporting it. What the stock market’s extended run up shows is that stocks can go for protracted periods with little or no connection to the real economy. This appears to be the breathtaking place we currently find ourselves.

Hence, while the economy’s certainly not propelling stocks up and to the right, the unending additions of mass money creation from the Fed are. Sooner or later this will lead to a great, big, magnificent crash. In the meantime, the melt up can last much longer than any individual of sound mind and honest intentions could ever imagine.

We should know. Here at the Economic Prism we’ve watched in disbelief, year after year, for the last five years as the stock market’s gone bananas. It seems there’s nothing stopping it.

Redistributing Wealth to the Rich

Unfortunately, the stock market’s launch into the upper stratosphere hasn’t done a lick for the average worker. Most people still find themselves behind where they were when the last recession started in 2007. In fact, median household income is still down over 6 percent from where it was in December 2007.

‘“Main Street is a long way from back,”’ said Simon Baker, the CEO of Baker Avenue Asset Management, on Wednesday. “‘If the question is, ‘Is Main Street happy?’ I don’t think so’.

“He refers to the Fed’s ongoing stimulus efforts as ‘a massive, $3.7 trillion redistribution of wealth’ that has only benefited banks and financial firms, as well as the wealthiest 5 percent of the country that holds real assets such as stocks and real estate.

“‘They’re the ones benefiting,’” said Baker, “‘not Main Street.”’

Up until this fall, we assumed the Fed would eventually be forced to unwind all its asset purchases. This, of course, would be severely disruptive to stock prices and the wealthiest 5 percent. But since September we’ve come to believe the Fed will continue to create money indefinitely and even increase its quantitative easing program.

Where will this lead?

The fact is this cannot go on forever. One day it will all stop…you can count on it. Moreover, that day will truly by an extraordinary day like no other.